Find the future values of the following ordinary annuities: a. FV of $400 paid each months for 5 years at a nominal rate of 14% compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent. $ b. FV of $200 paid each months for 5 years at a nominal rate of 14% compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent. $ c. These annuities receive the same amount of cash during the 5-year period and earn interest at the same nominal rate, yet the annuity in part b ends up larger than the one in part a. Why does this occur? -Select- -Select- V The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a). The annuity in part (a) is compounded less frequently; therefore, more interest is earned on previously-earned interest. The annuity in part (a) is compounded more frequently; therefore, more interest is earned on previously-earned interest. The annuity in part (b) is compounded less frequently; therefore, more interest is earned on previously-earned interest.
Find the future values of the following ordinary annuities: a. FV of $400 paid each months for 5 years at a nominal rate of 14% compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent. $ b. FV of $200 paid each months for 5 years at a nominal rate of 14% compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent. $ c. These annuities receive the same amount of cash during the 5-year period and earn interest at the same nominal rate, yet the annuity in part b ends up larger than the one in part a. Why does this occur? -Select- -Select- V The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a). The annuity in part (a) is compounded less frequently; therefore, more interest is earned on previously-earned interest. The annuity in part (a) is compounded more frequently; therefore, more interest is earned on previously-earned interest. The annuity in part (b) is compounded less frequently; therefore, more interest is earned on previously-earned interest.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:12. Problem 5.25 (Future Value of an Annuity)
B
eBook
8
Find the future values of the following ordinary annuities:
a. FV of $400 paid each 6 months for 5 years at a nominal rate of 14% compounded semiannually. Do not round intermediate calculations. Round your answer to the nearest cent.
$
b. FV of $200 paid each 3 months for 5 years at a nominal rate of 14% compounded quarterly. Do not round intermediate calculations. Round your answer to the nearest cent.
Problem Walk-Through
c. These annuities receive the same amount of cash during the 5-year period and earn interest at the same nominal rate, yet the annuity in part b ends up larger than the one in part a. Why does this occur?
-Select-
-Select-
The nominal deposits into the annuity in part (b) are greater than the nominal deposits into the annuity in part (a).
The annuity in part (a) is compounded less frequently; therefore, more interest is earned on previously-earned interest.
The annuity in part (a) is compounded more frequently; therefore, more interest is earned on previously-earned interest.
The annuity in part (b) is compounded less frequently; therefore, more interest is earned on previously-earned interest.
The annuity in part (b) is compounded more frequently; therefore, more interest is earned on previously-earned interest.
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